T. MICHAEL PUTNAM, Magistrate Judge.
This case is before the court on the Motion for Summary Judgment (doc. 43), filed January 4, 2013, by The Bank of New York Mellon Trust Company ("Plaintiff"), as successor Indenture Trustee, on behalf of bondholders. Plaintiff's claim arises from alleged defaults by defendants Salem Nursing & Rehab Center of Reform, Inc., and The Medical Clinic Board of the City of Reform, Alabama, on bonds issued May 1, 1995. (Doc. 19, p. 3). In response to the alleged default, Plaintiff filed the instant lawsuit. (Doc. 19). Plaintiff's motion for summary judgment seeks for the court to:
(Doc. 43, p. 16). Defendants have filed a brief in opposition, along with exhibits, and Plaintiff has filed a reply to that brief. The court has considered the evidence and the arguments set forth by all parties. The parties have consented to the exercise of jurisdiction by the undersigned pursuant to 28 U.S.C. § 636(c) (doc. 16).
Under Federal Rule of Civil Procedure 56(c), summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). The party asking for summary judgment "always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of `the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of material fact."
Once the moving party has met his burden, Rule 56(e) "requires the nonmoving party to go beyond the pleadings and by her own affidavits, or by the `depositions, answers to interrogatories, and admissions of file,' designate `specific facts showing that there is a genuine issue for trial.'"
After the plaintiff has properly responded to a proper motion for summary judgment, the court must grant the motion if there is no genuine issue of material fact, and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). The substantive law will identify which facts are material and which are irrelevant.
For purposes of summary judgment, the facts are as follows.
On May 1, 1995, the Board and Compass Bank entered into an Indenture of Trust, to which plaintiff ultimately became Compass's successor in interest. (Doc. 19-1). As a part of the agreement, the Board issued bonds to Compass Bank to finance the costs of the acquisition, expansion, and renovation of the Reform Health Care Center. (
The Bonds are governed by (1) the Indenture of Trust dated May 1, 1995 (doc. 19-1), and (2) the First Supplemental Indenture dated September 1, 2000 (doc. 19-2). To secure the obligations in the Indenture of Trust, the Board executed the Mortgage and Fixture Filing (the "Mortgage") (doc. 19-7) and Security Agreement (doc. 19-5) to the Trustee, as successor in interest to Compass Bank. The Mortgage grants the Trustee a first priority mortgage lien on the Nursing Home, Project Site (as defined by the Mortgage document), and Revenues (as defined by the Mortgage document). (Doc. 19-7).
To generate the revenue needed to pay the Bond obligation, the Board entered into a Lease Agreement dated May 1, 1995, (doc. 19-3) with Salem Housing Corporation, in which Salem Housing Corporation leased the Project from the Board.
The Bonds are special limited obligations of the Board, payable solely from the payments made by SNRC under the Lease or, upon an event of default, from the proceeds derived from the liquidation of the Project and any other personal property covered by the Mortgage. (Doc. 19-1, §§ 6.1, 10.3, 10.7; Doc. 19-7, § 2.6; Doc. 43-1 at ¶ 16). Under the Lease Agreement, SNRC must pay, as rent, the amounts required by the Lease Agreement in installments that, in the aggregate, are sufficient to pay in full, when due, all the outstanding Bonds, including the total interest due and payable, the total principal amount of the Bonds, and the premium, if any, payable on the redemption of any Bonds. (Doc. 19-4, Art. III). SNRC is required to operate the Project on a revenue-producing basis, and fix, charge, and collect, or cause to be fixed, charged, and collected, rates, fees and charges sufficient each year to produce Net Revenues Available for Debt Service
In the event of a default under the Lease Agreement, if the Trustee employs attorneys or incurs other expenses in connection with the collection of payments required under the Lease Agreement or the enforcement of performance of any obligations under the Lease Agreement, SNRC is liable to the Trustee for reasonable attorneys' fees and expenses. (Doc. 19-3, § 10.4). Events of Default under the Lease Agreement include the failure of SNRC to make payments required under § 4.2(a) or (b) and the failure of SNRC to observe and perform any covenant, condition, or agreement under the Lease Agreement. (Doc. 19-3, § 10.1). Events of Default under the Indenture are defined as, among others: (a) the failure of the Board to pay interest on the Bonds when due; (b) the failure of the Board to pay principal on the Bonds when due; (c) default in the performance or observance of any covenant by the Board and the failure to remedy the same after notice; and (d) the occurrence of an Event of Default under the Mortgage or Lease Agreement. (Doc. 19-1, § 10.1).
Upon the occurrence of an Event of Default under the Indenture, the Lease Agreement, or the Mortgage, the Trustee is entitled to the appointment of a receiver over the Property as a matter of right.
The Board has failed to make the payments to the Trustee required under §§ 3.6(b) and (c) of the Indenture. Those required payments consist of:
(Doc. 19-1, §§ 3.6(b), 3.6(c)). The Board has failed to make the payments to redeem the Bonds maturing in 2010, 2011, or 2012. The Board also has failed to pay the required semiannual installments of interest, of $105,495.63 each, on the Bonds due for payment on and after November 1, 2009. (Doc. 43-1 at && 19-20). As of November 15, 2012, the Board has failed to cure the defaults described above. (
The Trustee is owed the following sums on the Bonds: unpaid principal and interest, interest due on unpaid and overdue interest, and interest due on unpaid and overdue principal. Interest continues to accrue at the Late Payment Rate of $669.65 per day. (Doc. 43-1 at ¶ 24). There is a dispute of fact as to the amounts owed. Specifically, Defendants contend that there exists $305,053.13, of acknowledged "on hand" funds being held by the Plaintiff/Trustee which should be applied as a credit against alleged payment due on the Bonds. (Doc. 46, p. 1). This arrangement was discussed in a "payoff letter" sent by Plaintiff to Defendants on December 6, 2012. (Doc. 46-2, p. 2). Also, Defendants contend that the Plaintiff has not presented sufficient proof of its claimed expenses and the reasonableness of those expenses, specifically the reasonableness of attorney's fees claimed as expenses of the Trustee.
The last lease payment received by the Trustee on behalf of SNRC was in the amount of $178,426.88 on or about May 1, 2009, and the Trustee has not received any lease payments since. (Doc. 43-1 at ¶ 26;
Covenant Defaults under § 10.1(c) of the Indenture ripen into Events of Default if the Covenant Default is not cured within 30 days of receipt of notice through first class mail. (Doc. 19-1, § 10.12(d); Doc. 19-3, § 10.1(b); Doc. 43-1 at ¶ 48). The Trustee provided SNRC with notice of the Covenant Defaults and, as of January 4, 2013, SNRC had failed to cure the Covenant Defaults.
Pursuant to the Lease Agreement, the Repair and Replacement Fund is required to maintain a balance of $40,000.00
Under the Lease Agreement, SNRC is required to provide the Trustee with audited balance sheets, income statements, and results of operations on an annual basis. (Doc. 19-3, § 6.5(a)). As of November 15, 2012, SNRC had failed to provide the required documents for fiscal years ending June 30 of 2010, 2011, and 2012. (Doc. 43-1 at ¶ 38; Doc. 43-2, 153:8-15, 154:10-17; Doc. 43-3, 81:5-9 (stating he is unaware of whether audits were done)).
Under the Lease Agreement, SNRC is required to set its rates at levels that will generate revenues sufficient to meet SNRC's obligations under the Lease Agreement. (Doc. 19-3, § 6.7). If SNRC is not generating sufficient revenue to meet its obligations under the Lease Agreement, it is required to employ independent accountants or consultants to examine its operations. (
SNRC is not permitted under the Lease Agreement to make intercompany loans until it has fulfilled all of its monthly obligations under the Lease Agreement. (Doc. 19-3, § 6.13). However, SNRC's audited financial statements for the fiscal year ending June 30, 2009, show a Current Asset labeled "Intercompany" in the amount of $1,375,740.00. (Doc. 43-1 at ¶ 42). SNRC's unaudited financial statements and Medicare and Medicaid Cost Reports for fiscal years ending June 30 of 2010, 2011, and 2012, each reflect accounting entries that appear to represent the Current Asset labeled "Intercompany." (Doc. 43-1 at ¶ 43). Because SNRC has not made the payments required under the Lease Agreement since at least May 2009, it was not permitted to make intercompany loans after that date (presuming SNRC met its obligations in May 2009). (Doc. 19-3, § 6.13).
Pursuant to the Lease Agreement, SNRC is required to maintain working capital in the amount of at least Two Hundred Fifty Thousand Dollars ($250,000.00). (Doc. 19-3, § 6.10). As of November 15, 2012, SNRC did not have the required amount of working capital. (Doc. 43-2, 177:21-178:7, 193:22-194:10; Doc. 43-1 at ¶ 45).
An Event of Default under either the Indenture or the Lease Agreement constitutes an Event of Default under the Mortgage. (Doc. 19-7, § 2.1(d)). Because undisputed Events of Default have occurred and continue to occur, under both the Indenture and the Lease Agreement, as set forth, supra, an Event of Default has occurred and continues to occur under the Mortgage. (Doc. 19-7, § 2.1(d); Doc. 43-1 at ¶ 50).
Summary judgment is appropriate in a breach of contract action where the contract is unambiguous and the facts undisputed.
Although the court agrees that questions remain as to the amount of damages to which Plaintiff is entitled and the amount of Trustee fees and expenses that are reasonable, these questions do not preclude summary judgment in favor of the moving party on questions of liability for breach of the Indenture and Lease Agreement, and for forms of relief not related to the actual amount of money damages. The undisputed evidence presented by Plaintiff establishes that Defendants entered into the agreements herein willingly and have defaulted on these agreements, and have remained in default for over four years, as set out by Plaintiff in the motion for summary judgment. The evidence establishes that Defendants are liable to Plaintiff, although the amount of liability remains in question. Defendants have offered no evidence to dispute Plaintiff's claim. Because there is no issue of material fact, summary judgment is appropriate as to finding the Defendants liable to the Trustee, as well as the Trustee's entitlement to relief such as the appointment of a receiver and other equitable relief.
Premised on the foregoing, Plaintiff's motion for summary judgment is due to be GRANTED. By separate Orders, the court will GRANT summary judgment to the Plaintiff on the liability of the Defendants, and will order the appointment of a receiver to take over the operations of the Project nursing home, and will order the Defendants to make an accounting to the Plaintiff for all funds, revenues, and expenditures since May 1, 2009. The court reserve to a later time the determination whether the plaintiff is entitled to a money judgment for damages.
